UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarterly Period Ended December 31, 2009
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from _______________ to ______________
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Commission File Number: 0-13215
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WARP 9, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 30-0050402
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
50 CASTILIAN DRIVE, SUITE 101, SANTA BARBARA, CA 93117
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(Address of principal executive offices) (Zip Code)
(805) 964-3313
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[__] No[_X_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[__] No[_X_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 10, 2010 the number of shares outstanding of the registrant's
class of common stock was 340,579,815.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
-------
Item 1. Consolidated Financial Statements 2
Consolidated Balance Sheets as of December 31, 2009 (unaudited) and June 30, 2009 (audited) 3
Consolidated Statements of Income for the Three and Six Months ended December 31, 2009
and December 31, 2008 (unaudited) 4
Consolidated Statement of Shareholders' Equity for the Six Months ended December 31, 2009 (unaudited) 5
Consolidated Statements of Cash Flows for the Six Months ended December 31, 2009 and
December 31, 2008 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4T. Controls and Procedures 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
-2-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 2009 June 30, 2009
----------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 1,030,481 $ 849,508
Restricted Cash 93,000 93,000
Accounts Receivable, net 228,177 324,668
Prepaid and Other Current Assets 8,126 11,804
Current Portion of Deferred Tax Asset 134,547 165,167
--------------- -------------
TOTAL CURRENT ASSETS 1,494,331 1,444,147
--------------- -------------
PROPERTY & EQUIPMENT, at cost
Furniture, Fixtures & Equipment 89,485 89,485
Computer Equipment 514,450 511,889
Commerce Server 50,000 50,000
Computer Software 20,033 9,476
--------------- -------------
673,968 660,850
Less accumulated depreciation (636,107) (621,829)
--------------- -------------
NET PROPERTY AND EQUIPMENT 37,861 39,021
--------------- -------------
OTHER ASSETS
Lease Deposit 8,756 9,749
Internet Domain, net 806 891
Long Term Deferred Tax Asset 1,726,626 1,762,727
--------------- -------------
TOTAL OTHER ASSETS 1,736,188 1,773,367
--------------- -------------
TOTAL ASSETS $ 3,268,380 $ 3,256,535
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 12,546 $ 70,573
Credit Cards Payable - 254
Accrued Expenses 84,593 87,194
Note Payable, Other 35,362 33,916
Customer Deposit 39,386 48,431
Capitalized Leases, Current Portion 2,793 8,138
--------------- -------------
TOTAL CURRENT LIABILITIES 174,680 248,506
--------------- -------------
LONG TERM LIABILITIES
Note payable, Other 28,729 46,542
--------------- -------------
TOTAL LONG TERM LIABILITIES 28,729 46,542
--------------- -------------
TOTAL LIABILITIES 203,409 295,048
--------------- -------------
SHAREHOLDERS' EQUITY
Common Stock, $0.001 Par Value;
495,000,000 Authorized Shares;
340,579,815 Shares Issued and Outstanding 340,579 340,579
Additional Paid In Capital 6,902,749 6,897,311
Accumulated Deficit (4,178,357) (4,276,403)
--------------- -------------
TOTAL SHAREHOLDERS' EQUITY 3,064,971 2,961,487
--------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,268,380 $ 3,256,535
=============== =============
The accompanying notes are an integral part of
these consolidated financial statements
-3-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
--------------- ----------------- ----------------- --------------
REVENUE $ 502,470 $ 620,159 $ 888,541 $ 1,088,024
COST OF SERVICES 38,479 42,159 75,505 79,895
--------------- ----------------- ----------------- --------------
GROSS PROFIT 463,991 578,000 813,036 1,008,129
--------------- ----------------- ----------------- --------------
OPERATING EXPENSES
Selling, general and administrative expenses 319,764 372,928 648,180 719,660
Research and development 5,000 10,262 10,000 26,877
Stock option expense 2,896 2,974 5,438 5,924
Depreciation and amortization 7,182 16,513 14,363 33,026
--------------- ----------------- ----------------- --------------
TOTAL OPERATING EXPENSES 334,842 402,677 677,981 785,487
--------------- ----------------- ----------------- --------------
INCOME FROM OPERATIONS BEFORE OTHER INCOME (EXPENSES) 129,149 175,323 135,055 222,642
--------------- ----------------- ----------------- --------------
OTHER INCOME/(EXPENSE)
Interest Income 7,226 6,603 17,291 10,736
Other Income 5,287 9,150 16,537 18,900
Interest Expense (1,901) (8,725) (4,116) (13,910)
--------------- ----------------- ----------------- --------------
TOTAL OTHER INCOME/(EXPENSE) 10,612 7,028 29,712 15,726
--------------- ----------------- ----------------- --------------
INCOME FROM OPERATIONS BEFORE PROVISION FOR TAXES 139,761 182,351 164,767 238,368
PROVISION FOR INCOME (TAXES)/BENEFIT
Income (taxes)/benefit (55,762) (140,271) (66,721) (186,458)
--------------- ----------------- ----------------- --------------
NET INCOME $ 83,999 $ 42,080 $ 98,046 $ 51,910
=============== ================= ================= ==============
BASIC EARNINGS PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00
=============== ================= ================= ==============
DILUTED EARNINGS PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00
=============== ================= ================= ==============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC 340,579,815 340,579,815 340,579,815 340,579,815
=============== ================= ================= ==============
DILUTED 340,579,815 340,579,815 340,579,815 340,579,815
=============== ================= ================= ==============
The accompanying notes are an integral part of
these consolidated financial statements
-4-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERRS' EQUITY
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
-------------- ----------- ------------ ------------ ------------
Balance, June 30, 2009 340,579,815 $ 340,579 $ 6,897,311 $ (4,276,403) $ 2,961,487
Stock compensation expense (unaudited) - - 5,438 - 5,438
Net income for the six months ended December 31, 2009 (unaudited) - - - 98,046 98,046
-------------- ----------- ------------ ------------ ------------
Balance, December 31, 2009 (unaudited) 340,579,815 $ 340,579 $ 6,902,749 $ (4,178,357) $ 3,064,971
============== =========== ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements
-5-
WARP 9, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31, 2009 December 31,2008
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 98,046 $ 51,910
Adjustment to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 14,363 33,026
Bad debt expense (79,217) (38,563)
Cost of stock compensation recognized 5,438 5,924
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable 175,708 (91,853)
Prepaid and other assets 3,678 5,075
Deferred tax asset 66,721 178,808
Deposits 993 -
Increase (Decrease) in:
Accounts payable and credit cards payable (58,281) (51,516)
Accrued expenses (2,601) 55,809
Deferred Income - (35,333)
Corporate income tax payable - 6,050
Other liabilities (9,045) (14,453)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 215,803 104,884
----------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,118) (6,286)
----------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (13,118) (6,286)
----------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable - (50,481)
Payments on notes payable, other (16,367) (20,054)
Payments on capitalized leases (5,345) (15,279)
Proceeds from line of credit - 535
Proceeds from issuance of common stock, net of cost - (300)
----------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (21,712) (85,579)
----------------- -------------
NET INCREASE IN CASH 180,973 13,019
CASH, BEGINNING OF PERIOD 849,508 680,649
----------------- -------------
CASH, END OF PERIOD $ 1,030,481 $ 693,668
================= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 4,116 $ 13,910
================= =============
Taxes paid $ - $ 1,600
================= =============
The accompanying notes are an integral part of
these consolidated financial statements
-6-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2009
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal recurring adjustments considered necessary for a fair
presentation have been included. Operating results for the six months ended
December 31, 2009 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2010. For further information refer
to the financial statements and footnotes thereto included in the Company's
Form 10K for the year ended June 30, 2009.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Warp 9, Inc. is
presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America and have been consistently applied in the
preparation of the financial statements.
STOCK-BASED COMPENSATION
The Company addressed the accounting for share-based payment transactions
in which an enterprise receives employee services in exchange for either
equity instruments of the enterprise or liabilities that are based on the
fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity instruments. The transactions are accounted for
using a fair-value-based method and recognized as expenses in our statement
of income. There was no material impact on the Company's financial
statement of operations.
Stock-based compensation expense recognized during the period is based on
the value of the portion of stock-based payment awards that is ultimately
expected to vest. Stock-based compensation expense recognized in the
consolidated statement of operations during the six months ended December
31, 2009, included compensation expense for the stock-based payment awards
granted prior to, but not yet vested, as of December 31, 2009 based on the
grant date fair value estimated. Stock-based compensation expense
recognized in the statement of income for the six months ended December 31,
2009 is based on awards ultimately expected to vest, it has been reduced
for estimated forfeitures. Forfeitures are estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. The stock-based compensation expense
recognized in the consolidated statements of operations during the six
months ended December 31, 2009 and 2008 are $5,438 and $5,924 respectively.
3. CAPITAL STOCK
At December 31, 2009 and 2008, the Company's authorized stock consists of
495,000,000 shares of common stock, par value $0.001 per share. The Company
is also authorized to issue 5,000,000 shares of preferred stock with a par
value of $0.001. The rights, preferences and privileges of the holders of
the preferred stock will be determined by the Board of Directors prior to
issuance of such shares.
4. STOCK OPTIONS AND WARRANTS
On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan
for Directors, Executive Officers, and Employees of and Key Consultants to
the Company. This Plan, may issue 25,000,000 shares of common stock.
Options granted under the Plan could be either Incentive Options or
Nonqualified Options, and are administered by the Company's Board of
Directors. Each option may be exercisable in full or in installment and at
such time as designated by the Board. Notwithstanding any other provision
of the Plan or of any Option agreement, each option are to expire on the
date specified in the Option agreement, which date are to be no later than
the tenth anniversary of the date on which the Option was granted (fifth
anniversary in the case of an Incentive Option granted to a
greater-than-10% stockholder). The purchase price per share of the Common
Stock under each
-7-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2009
4. STOCK OPTIONS AND WARRANTS (Continued)
Incentive Option is to be no less than the Fair Market Value of the Common
Stock on the date the option was granted (110% of the Fair Market Value in
the case of a greater-than-10% stockholder). The purchase price per share
of the Common Stock under each Nonqualified Option were to be specified by
the Board at the time the Option was granted, and could be less than, equal
to or greater than the Fair Market Value of the shares of Common Stock on
the date such Nonqualified Option was granted, but were to be no less than
the par value of shares of Common Stock. The plan provided specific
language as to the termination of options granted hereunder.
The Company used the historical industry index to calculate volatility,
since the Company's stock history did not represent the expected future
volatility of the Company's common stock. The fair value of options granted
was determined using the Black Scholes method with the following
assumptions:
Period Ended
12/31/2009
--------------------
Risk free interest rate 3.01% - 5.07%
Stock volatility factor 0.31 - 186.29
Weighted average expected option life 4 years
Expected dividend yield none
A summary of the Company's stock option activity and related information
follows:
Period ended
12/31/2009
--------------------------------
Weighted
average
exercise
Options price
----------------- --------------
Outstanding -beginning of year 12,400,000 $ 0.02
Granted 340,000 0.01
Exercised - -
Forfeited (800,000) 0.01
----------------- --------------
Outstanding - end of year 11,940,000 $ 0.01
================= ==============
Exercisable at the end of year 9,791,551 $ 0.01
================= ==============
Weighted average fair value of
options granted during the year $ -
==============
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options, which do not have vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
-8-
WARP 9, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2009
4. STOCK OPTIONS AND WARRANTS (Continued)
The weighted average remaining contractual life of options outstanding
issued under the plan as of December 31, 2009 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
------------------- ------------------ ------------------
$ 0.070 100,000 4.00
$ 0.080 50,000 2.00
$ 0.010 10,090,000 4.17
$ 0.020 500,000 5.47
$ 0.008 100,000 8.33
$ 0.014 100,000 8.51
------------------
11,940,000
==================
5. INCOME TAXES
The Company files income tax returns in the U.S. Federal jurisdiction, and
the state of California. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2006.
The Company accounts for uncertainty in tax positions by recognition in the
financial statements.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
6. SUBSEQUENT EVENT
The following are items management has evaluated as subsequent events as of
February 18, 2010 the date the financial statements were issued.
During February 2010, the Company received a demand for payment in the
amount of $104,455.52 for utilities from Ericsson, Inc. under the assertion
that the Company is in default of the sublease. Ericsson, Inc. notified
Warp 9 that they intend to attempt to draw on the standby letter of credit
of $93,000 (restricted cash). Though the Company is disputing both the
claim of default and the actual utilities amounts, there can be no
assurance it will be successful.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
This Form 10-Q may contain "forward-looking statements," as that term
is used in federal securities laws, about Warp 9, Inc.'s financial condition,
results of operations and business. These statements include, among others:
o statements concerning the potential benefits that Warp 9, Inc. ("W9" or
the "Company") may experience from its business activities and certain
transactions it contemplates or has completed; and
o statements of W9's expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts. These statements may be made expressly in this Form 10-Q. You
can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "opines," or similar
expressions used in this Form 10-Q. These forward-looking statements
are subject to numerous assumptions, risks and uncertainties that may
cause W9's actual results to be materially different from any future
results expressed or implied by W9 in those statements. The most
important facts that could prevent W9 from achieving its stated goals
include, but are not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its
business, and inability to raise additional capital
or financing to implement its business plans;
(e) failure to further commercialize its technology or to
make sales;
(f) reduction in demand for the Company's products and
services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by
outside parties, reducing revenue and increasing
costs;
(i) insufficient revenues to cover operating costs;
(j) failure of the re-licensing or other
commercialization of the Roaming Messenger technology
to produce revenues or profits;
(k) aspects of the Company's business are not proprietary
and in general the Company is subject to inherent
competition;
(l) further dilution of existing shareholders ownership
in Company; and
(m) uncollectible accounts and the need to incur expenses
to collect amounts owed to the Company.
-10-
There is no assurance that the Company will be profitable, the Company
may not be able to successfully develop, manage or market its products and
services, the Company may not be able to attract or retain qualified executives
and technology personnel, the Company may not be able to obtain customers for
its products or services, the Company's products and services may become
obsolete, government regulation may hinder the Company's business, additional
dilution in outstanding stock ownership may be incurred due to the issuance of
more shares, warrants and stock options, the exercise of outstanding warrants
and stock options, or other risks inherent in the Company's businesses.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. W9 cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-Q. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
W9 or persons acting on its behalf may issue. The Company does not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Form 10-Q, or to reflect the
occurrence of unanticipated events.
CURRENT OVERVIEW
Warp 9 is a provider of e-commerce software platforms and services for
the catalog and retail industry. Our suite of software platforms are designed to
help multi-channel retailers maximize the Internet channel by applying our
technologies for online catalogs, e-mail marketing campaigns, and interactive
visual merchandising. Offered as an outsourced and fully managed
Software-as-a-Service ("SaaS") model, our products allow customers to focus on
their core business, rather than technical implementations and software and
hardware architecture, design, and maintenance. We also offer professional
services to our clients which include online catalog design, merchandizing and
optimization, order management, e-mail marketing campaign development,
integration to third party payment processing and fulfillment systems,
analytics, custom reporting and strategic consultation.
Our products and services allow our clients to lower costs and focus on
promoting and marketing their brand, product line and website while leveraging
the investments we have made in technology and infrastructure to operate a
dynamic online Internet presence.
We charge our customers a monthly fee for using our e-commerce software
based on a Software-as-a-Service model. These fees include fixed monthly
charges, and variable fees based on the sales volume of our clients' e-commerce
websites. Unlike traditional software companies that sell software on a
perpetual license where quarterly and annual revenues are quite difficult to
predict, our SaaS model spreads the collection of contract revenue over several
quarters or years and makes our revenues more predictable for a longer period of
time.
While the Warp 9 Internet Commerce System ("ICS") is our flagship and
highest revenue product, we have been developing and deploying new products
based on a proprietary virtual publishing technology that we have developed.
These new products have allowed for the creation of interactive web versions of
paper catalogs ("VCS") and magazines ("VMS") where users can flip through pages
with a mouse and click on products or advertisements. These magazines or
catalogs have built-in integration for e-commerce transactions through our ICS
product and other transaction based activities. Clients utilizing this
technology have discovered when exposing consumers to virtual catalogs, a higher
average order size and significant increase in rate of conversion result. We
have been selling this solution on a limited basis as a professional service
while we refine the product and technology. We believe there are many markets
for our virtual catalog and magazine technology and we intend to test market
these new products with greater distribution in the near future.
-11-
Research and development ("R&D") efforts have been focused both on
these new products and on updating our current products with new features. In
the planning phase of these new features, we look to direct client feedback and
feature requests; we study the e-commerce landscape to determine features that
will provide our clients with a competitive advantage in producing greater and
more effective selling; and we also examine features that will create a
competitive advantage during our sales process to clients. Emerging and
declining trends also play a role in how clients perceive what features should
be provided by which vendors. We are sometimes able to capitalize on these
opportunities by bundling features for greater value and/or increased fees and
revenue.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly those related
to the determination of the estimated recoverable amounts of trade accounts
receivable, impairment of long-lived assets, revenue recognition and deferred
tax assets. We believe the following critical accounting policies require more
significant judgment and estimates used in the preparation of the financial
statements.
We maintain an allowance for doubtful accounts for estimated losses
that may arise if any of our customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payment
terms when making estimates of the uncollectability of our trade accounts
receivable balances. If we determine that the financial conditions of any of our
customers deteriorated, whether due to customer specific or general economic
issues, increases in the allowance may be made. Accounts receivable are written
off when all collection attempts have failed.
We follow the provisions of Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" for revenue recognition and SAB
104. Under Staff Accounting Bulletin 101, four conditions must be met before
revenue can be recognized: (i) there is persuasive evidence that an arrangement
exists, (ii) delivery has occurred or service has been rendered, (iii) the price
is fixed or determinable and (iv) collection is reasonably assured.
Income taxes are accounted for under the asset and liability method.
Under this method, to the extent that we believe that the deferred tax asset is
not likely to be recovered, a valuation allowance is provided. In making this
determination, we consider estimated future taxable income and taxable timing
differences expected in the future. Actual results may differ from those
estimates.
-12-
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009
COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008
REVENUE
Total revenue for the three months ended December 31, 2009 decreased by
($117,689) to $502,470 compared to $620,159 for the same prior period. For the
six months ended December 31, 2009, total revenue decreased by ($199,483) to
$888,541 compared to $1,088,024 in the same prior period. The overall decrease
in revenue was the result of reduced online marketing services for our clients
due primarily to budget cut-backs by our clients, and a decrease in recurring
monthly fees due also to the slowing economic environment. This decrease was
partially off-set by an increase in ICS Site Development fees for new clients.
COST OF REVENUE
The cost of revenue for the three months ended December 31, 2009
decreased by ($3,680) to $38,479 compared to $42,159 for the same prior period.
For the six months ended December 31, 2009 the cost of revenue decreased
($4,390) to $75,505 compared to $79,895 for the same prior period. The overall
decrease was primarily due to the decrease in costs incurred for vendor
services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the three
months ended December 31, 2009 decreased ($53,164) to $319,764 compared to
$372,928 for the same prior period. For the six months ended December 31, 2009,
SG&A expenses decreased by ($71,480) to $648,180 compared to $719,660 for the
same prior period. The overall decrease in SG&A expenses was primarily due to
decreased employee expenses caused by reduced executive bonus compensation
combined with an increased recognition of certain bad debt allowance due to
accounts receivable more than 90 days over due.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended December
31, 2009 decreased by ($5,262) to $5,000 as compared to $10,262 for the same
prior period. For the six months ended December 31, 2009, the research and
development expenses decreased ($16,877) to $10,000 compared to $26,877 for the
same prior period. The overall decrease was due to the decrease in employee
expenses caused by staff reductions allocated for product development and
improvement.
NET INCOME
The consolidated net income for the three months ended December 31,
2009 was $83,999 compared to $42,080 for the same prior period. For the six
months ended December 31, 2009, the consolidated net income was $98,046 compared
to $51,910 for the same prior period. The consolidated net income for the three
and six months ended December 31, 2009 includes a non-cash depreciation expense
of ($9,331) and ($18,663) respectively combined with an increase to the tax
provision of $84,509 and $119,737 respectively.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital (i.e. the difference between
current assets and current liabilities) of $1,319,651 at December 31, 2009 as
compared to a net working capital of $1,195,641 at June 30, 2009.
Cash flow provided by operating activities was $215,803 for the six
months ended December 31, 2009 as compared to $104,884 for the same prior
period. The increase in cash flow of $110,919 provided by operating activities
was primarily due to an increase in collection of accounts receivable.
Cash flow used in investing activities was ($13,118) for the six months
ended December 31, 2009 as compared to ($6,286) for the same prior period. The
increase in cash flow of $6,832 used in investing activities was due to the
purchase of computer equipment and software.
Cash flow used by financing activities was ($21,712) for the six months
ended December 31, 2009 as compared to ($85,579) for the same prior period. The
decrease of ($63,867) in cash flow used by financing activities was due to the
retirement of notes payable and capital leases.
While we expect that our capital needs in the foreseeable future will
be met by cash-on-hand and positive cash-flow, there is no assurance that the
Company will have sufficient capital to finance its growth and business
operations, or that such capital will be available on terms that are favorable
to the Company or at all. In the current financial environment, it has been
difficult for the Company to obtain equipment leases and other business
financing. There is no assurance that we would be able to obtain additional
working capital through the private placement of common stock or from any other
source.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by Warp 9 in the reports that
it files under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer that it files under the Exchange Act is accumulated and communicated to
the issuer's management, including its principal executive officer and principal
financial officers, or persons performing similar functions as appropriate to
allow timely decisions regarding required disclosure. The Company's Chairman,
Chief Executive Officer, and Acting Chief Financial Officer are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Management has evaluated the effectiveness of the Company's disclosure
controls and procedures as of December 31, 2009 (under the supervision and with
the participation of the Company's Chairman, Chief Executive Officer, and Acting
Chief Financial Officer) pursuant to Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended. As part of such evaluation, management
considered the matters discussed below relating to internal control over
financial reporting. Based on this evaluation, the Company's Chairman, Chief
Executive Officer, and Acting Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective as of December 31,
2009.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting, (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934). The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to change in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. After evaluating the Company's internal controls over financial
reporting, the Company's Chairman, Chief Executive Officer, and Acting Chief
Financial Officer have concluded that the internal controls over financial
reporting are effective as of December 31, 2009.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over
financial reporting that occurred during the Company's second fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no current legal proceedings as of this time.
The Company may file additional collection actions and be involved in
other litigation in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
---------------- -- --------------------------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
---------------- -- --------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Certificate for Common Stock (1)
4.2 Non-Qualified Employee Stock Option Plan (2)
10.1 First Agreement and Plan of Reorganization between Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation (3)
10.2 Second Agreement and Plan of Reorganization between Latinocare Management Corporation, a Nevada
corporation, and Warp 9, Inc., a Delaware corporation (4)
10.3 Exchange Agreement and Representations for Shareholders of Warp 9, Inc.(3)
10.4 Termination and Assignment (5)
31.1 Section 302 Certification
32.1 Section 906 Certification
---------------- -- --------------------------------------------------------------------------------------------------
(1) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 10-KSB filed with the
Securities and Exchange Commission, dated March 31, 2002.
(2) Incorporated by reference from the exhibits included in the
Company's Information Statement filed with the Securities and
Exchange Commission, dated August 1, 2003.
(3) Incorporated by reference from the exhibits included with the
Company's prior Report on Form SC 14F-1 filed with the
Securities and Exchange Commission, dated April 8, 2003.
(4) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8-K filed with the Securities
and Exchange Commission, dated May 30, 2003.
(5) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8-K filed with the Securities
and Exchange Commission, dated May 7, 2007.
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.
(1) None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 18, 2010 WARP 9, INC.
----------------------------------------------
(Registrant)
By: \s\Harinder Dhillon
----------------------------------------------
Harinder Dhillon, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: \s\Louie Ucciferri Dated: February 18, 2010
---------------------------------------------------
Louie Ucciferri, Corporate Secretary,
Acting Chief Financial Officer
(Principal Financial / Accounting Officer)
By: \s\Harinder Dhillon Dated: February 18, 2010
---------------------------------------------------
Harinder Dhillon, Chief Executive Officer and
President (Principal Executive Officer)
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